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KARACHI: Ratings agency Standard & Poor’s Ratings Services on Friday maintained its 'B-' long-term sovereign credit rating on Pakistan and affirmed the long-term outlook as stable, since the country’s weak fiscal position, high debt and underlying weak political and policy setting were off set by strong remittance inflows.

This comes a week after Moody’s Investor Service downgraded Pakistan’s foreign and local currency bond ratings by one notch to Caa1 from B, with a negative outlook citing the main concern to be an increased strain on the country’s external payment position following a rise in the trade deficit and a decline in capital outflows.

Standard & Poor's also affirmed its 'B-' issue rating on Pakistan's senior unsecured foreign- and local-currency debt and its 'B-' transfer and convertibility assessment. At the same time, it raised the short-term sovereign credit rating to 'B' from 'C', following a change in criteria that links long-term ratings with short-term ones.

It cited Pakistan’s public and external debt as one of the main rating constraint as net general government debt is an estimated 52 per cent of GDP in 2012, and 40 per cent of which is external debt.

"The interest burden on this debt poses a great constraint on discretionary spending, given already sparse fiscal resources," said Standard & Poor's credit analyst Agost Benard.

"The large interest bill and other expenditure-side rigidities against a narrow revenue base of about 12.5pc of GDP result in ongoing fiscal slippages."

Furthermore, the country’s uncertain political and security environment were also a constraint for ratings as a vulnerable political situation acted as a deterrent from effective policy making and implementation.

However, remittances from overseas Pakistanis which was at a record $13 billion in 2011-12, provided a cushion to maintain Pakistan’s current ratings.

The raising of the short-term rating reflects Standard and Poor’s criteria revision regarding the link between long-term and short-term sovereign credit ratings.

However Standard and Poor’s may lower the ratings if there are major slippages in policy which could lead to an increase in public debt or it the balance of payments position deteriorated significantly resulting in greater stress on foreign reserves.

Pakistan’s current account deficit rose to $4.517 billion in 2011-12, compared to a surplus of $214 million in the previous fiscal year. The deficit amounted to 1.9pc of GDP. Whereas the country’s foreign exchange reserves stood at $14.94 billion in week ending July 13, compared with a record $18.31 billion a year ago.

The ratings agency may raise Pakistan’s ratings if the country shows progress in curtailing its fiscal year deficit and reducing its public debt burden.